What legal action can I take against my former employer for refusing to roll over my pension plan to my IRA account?

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What legal action can I take against my former employer for refusing to roll over my pension plan to my IRA account?

Asked on February 6, 2014 under Employment Labor Law, California

Answers:

FreeAdvice Contributing Attorney / FreeAdvice Contributing Attorney

Answered 6 years ago | Contributor

Pensions are transferable if you want to roll the money into an Individual Retirement Account (IRA). A rollover means that you take receipt of your pension funds and deposit them into a new retirement account. The pension proceeds are given to you with the understanding that you will deposit the funds into an IRA within 60 days. Your employer withholds 20 percent of your balance and sends this to the IRS. You must make up this 20 percent out of pocket, add it to the 80 percent you received from your employer and deposit the total into your retirement account. When you file your tax return, you claim a refund for the amount withheld during the rollover. If you fail to perform the rollover, the IRS treats the rollover as a distribution of funds. You're assessed a 10 percent penalty on money you took before age 59 1/2 and pay ordinary income tax on the entire rollover amount.

Direct Transfer

Transfers are easier to complete than rollovers. Your pension administrator handles all of the transferring of funds. You move money from your pension to an IRA by signing a transfer request form with your pension administrator. The administrator then transfers the funds to another financial institution of your choosing and the new institution sets up the IRA once you have successfully filled out an application for an account. There is no 60-day window for the funds transfer and no risk of being penalized. Finally, nothing is withheld. You receive all funds in your new account immediately and do not have to file for a refund.

Benefits

Transferring your pension to an individual account gives you more control over the investments in the account. You also gain the benefit of the option to convert some of your savings to a pension-like annuity payment at any time. Unlike pensions, the individual account doesn't force you into taking a payment from your IRA until you reach age 70 1/2.

Consideration

One type of IRA gives you tax-free income without any requirement to take payments at age 70 1/2. The Roth IRA allows you to prepay your tax liability in exchange for tax-free future income. The Roth does require you to pay tax on all money you convert (the prepayment of tax). So, you'll have to pay income tax on all money you convert from your pension. However, this is a one-time payment of tax. This option may lower your future taxes, especially if tax rates are higher when you retire than they were when you were working.

Answer: I suggest that you meet with your employer to get the money transferred. If there is a continued refusal, then you need to consult with a labor law attorney. One in your community can be found on attorneypages.com.


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